One-offs, high base hit Titan's Q1 performance

Demand was stable across most segments; analysts expect strong growth in the remaining quarters

Weak show of the jewellery business due to higher base and discontinuation of Golden Harvest Scheme (GHS) pulled down the performance of Titan in the June 2014 quarter. It offset the good show in watches but posted robust Ebitda (earnings before interest, tax, depreciation and amortisation) margin due to strong sales of high-margin studded jewellery. The street, however, had factored in these, given the net sales at Rs 2,854 crore (down 7.6 per cent year-on-year) were largely in line with Bloomberg consensus estimates of Rs 2,871 crore. However, one-offs in the quarter ensured net profit at Rs 177 crore (down 2.9 per cent).

Discontinuation of GHS impacted both revenue and net profit in the quarter. The higher base of jewellery sales - sales were up 47 per cent in June 2013 quarter aided by sharp correction in gold prices - coupled with absence of GHS led to a revenue decline of 10 per cent to Rs 2,349 crore for the segment. The discontinuation also resulted in one-time provisioning of Rs 15 crore towards interest paid on redemption of the scheme.

However, improved product mix helped the segment's Ebit margin expand 120 basis points to 10.3 per cent. Higher sales of the high-margin studded (diamond) jewellery also boosted overall Ebitda margin by 160 basis points to 9.5 per cent.

During the quarter, the RBI withdrew ban on 'gold loan scheme' it had imposed in August last year. This should help companies like Titan lower their borrowings and interest costs. While capital employed in the jewellery business stood at negative Rs 689 crore in the year-ago quarter, it stood at Rs 1,344 crore in the June quarter (though down Rs 300 crore sequentially). Also, interest costs doubled to Rs 35 crore in June quarter. The trend should hopefully improve going forward.

Titan plans to reintroduce the GHS scheme. Positively, volume growth in Titan’s watches division has also revived over the past two quarters. Sales grew by 10.1 per cent to Rs 440 crore and Ebit margin expanded 70 basis points to 11 per cent in June quarter. Helios grew a robust 20 per cent indicating resilience in watches demand.

Analysts remain positive on Titan and hope to see an upside of about 12-14 per cent for the stock. The stock, which fell on Friday, recovered all the losses on Monday.